INFORMATION CRITERIA FOR IMPULSE RESPONSE FUNCTION MATCHING ESTIMATION OF DSGE MODELS

We propose new information criteria for impulse response function matching estimators (IRFMEs). These estimators yield sampling distributions of the structural parameters of dynamic sto- chastic general equilibrium (DSGE) models by minimizing the distance between sample and theoretical impulse responses. First, we propose an information criterion to select only the responses that produce consistent estimates of the true but unknown structural parameters: the Valid Impulse Response Selection Criterion (VIRSC). The criterion is especially useful for mis-speci?ed models. Second, we propose a criterion to select the impulse responses that are most informative about DSGE model parameters: the Relevant Im- pulse Response Selection Criterion (RIRSC). These criteria can be used in combination to select the subset of valid impulse response functions with minimal dimension that yields asymptotically e¢ cient estimators. The criteria are general enough to apply to impulse responses estimated by VARs, local projections, and simulation methods. We show that the use of our criteria signi?cantly a§ects estimates and inference about key parameters of two well-known new Keynesian DSGE models. Monte Carlo evidence indicates that the criteria yield gains in terms of ?nite sample bias as well as o§ering tests statistics whose behavior is better approximated by ?rst order asymptotic theory. Thus, our criteria improve on existing methods used to implement IRFMEs.